China Power | Economy | East Asia
New scrutiny on the tutoring industry comes amid a broader tightening of regulations in general.
Over the weekend, Beijing announced new rules cracking down on the country’s booming education industry. A draft policy circulated by China’s top governing entity, the State Council, included steps to force after-school tutoring companies to register as nonprofits. No new licenses are to be issued. This move prevents tutoring firms from going public and raising capital, while already listed companies are banned from acquiring or investing in other services in the education sector. In addition, extracurricular tutoring is barred on weekends, public holidays, and school vacations.
In March, Chinese President Xi Jinping reportedly told a conference on children’s health in education that the tutoring industry had become a “stubborn malady.” Concerns for both the physical and mental health of China’s students appear to be increasing, though getting a leg up in the country’s competitive education system and job markets still dominates in parents’ minds. According to a survey of 4,000 parents by a state-backed newspaper, more than 90 percent of families enroll their children in extracurricular classes and more than half of respondents are spending more than $1,500 annually.
Parents invest heavily in their children’s education, particularly in China’s exam-oriented educational culture. The private tutoring market has swiftly expanded with the country’s economic boom and the sector is estimated to be valued around $120 billion. For example, China’s live tutoring app Yuanfudao, first launched in 2012, raised more than $2 billion from investors last year, growing to be worth $15.5 billion last year with 30,000 employees and more than 400 million users. The industry offers a gamut of extracurricular tutoring programs for elementary and middle school students, foreign language instruction, and high school and college entrance exam prep.
These new rules are not the first time the tutoring industry has been put under the thumb. Previous crackdowns included targeting institutions without teaching certificates or business licenses. Last fall, officials said they had inspected around 400,000 institutions around the country in a bid to bolster compliance. In 2018, education authorities found that thousands of after-school tutoring institutions in Beijing needed to make changes to their business practices and comply with regulations.
The latest rules prompted large sell-offs of shares of companies listed on U.S. and Hong Kong stock markets and may be indicative of a cap on the industry’s growth. Major education technology firms New Oriental Education & Technology (EDU) and TAL Education both saw their stocks plummet following the oversight measures. The new scrutiny on the tutoring sector comes amid a broader tightening of regulations around the influx of capital in business (other targeted sectors have included the fintech and ridesharing industries).
Beijing’s new rules are being framed as an attempt to alleviate the burdens and pressures on families raising children, amid heightened academic competition and record low birth rates. Even as the government has dropped the one-child policy and sought to encourage couples to have more children, the costs of supporting children can be a daunting obstacle. Among the new draft regulations are measures to decrease the homework load, boost the overall quality of education, and institute more uniform standards across education services.
Beyond the economic ramifications, however, the new policies may risk further entrenching inequalities. Wealthy families have the means to send children abroad and pay higher tutoring fees if domestic educational opportunities are curtailed and more strictly regulated. Meanwhile, three in four children grow up in rural China, where annual disposable income is around $2,600 and there are significant barriers to education. The announcement of the rules may have sent shockwaves through the stock market but the social implications, for better or worse, will likely not be evident in the short or even medium term.